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REPORT ON AH INVESTIGATION 

AS TO THE RATE OP TAX ON 
OLEOMARGERINE. 






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Book 






House Calendar No. 414. 

62d Congress, ) HOUSE OF REPRESENTATIVES, j Report 

3d Session. f I No. 1572. 



OLEOMARGARINE TAX. 



I'^EBRUAHY 25, 1913. — Referred to the House Calendar and ordered to be printed. 



Mr. Cox. from the Committee on Expenditures in tlie Treasury 
Department, submitted the l"ollowin<: 

BEPORT ON AN INVESTIGATION AS TO THE RATE OF TAX ON 
OLEOMARGARINE. 

For some time a controversy has existed between the Treasury 
Department and certain manufacturers of oleomargarine as to the 
rate of tax which shoukl be imposed by the department on oleo- 
margarine made by certain manufacturers thereof, during the years 
1911 and 1912. Under the law (act of 1902) oleomargarine is taxed 
at the rate of one-fourth cent per pound, unless said oleomargarine 
is artificially colored that causes it to look like butter of any shade of 
yellow, in which event it shall bear a tax of 10 cents per pound. 

During the investigation the committee heard a great deal of 
evidence, oral and documentary, on the subject as to whether or not 
the Treasury Department should accept in full the amounts hereafter 
set out, in lieu of the amounts claimed by the department, as the 
amount for w^hich it could lay an assessment on -the manufacturers 
thereof. The facts out of which this controversy^ grew^, originated 
with the manufacturers of oleomargarine using a colored cottonseed 
oil in the manufacture of oleo, known as fulvous oil, golden yellow, 
butter oil, etc. 

The committee finds the following to be the facts in said contro- 
versy: 

1. The committee finds that the manufacturers of oleomargarine 
for the past 10 years have used eveiy method known to science to get 
an oil not proliibited in the manufacture of oleo, by reason of the 
unhealthfuhiess of the article or the color of the finished commochty, 
so not to subject the oleo to a tax of 10 cents per pound; and in their 
investigations the manufacturers through their own bureaus of chem- 
istry, aided and assisted by private chemists, have experimented with 
sesame oil, mustard-seed oil, peanut oil soy-bean oil, etc. During the 
same time the refiners of cottonseed oil have conducted scientific 
investigations wdth a view of evolving a process of refining cottonseed 
oil wliich when refined would retain its natural color as found in its 
criule state, only cottonseed oil l)eing used in the manufacture of 



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2 OLEOMARGARINE TAX. ^^ y\F 'J* 

oleo; but all of said experiments and investigations have proven 
fruitless, either because of the fact of the high expense attached to 
said processes or to the fact that the fuiished commodity failed b}'- 
reason of the taste thereof to meet the demands of the trade. 

2. The committee fijids tliat unrefined cottonseed oil is highly 
colorerl, and that the normal rofined cottonseed oil is colorless, white, 
or a tinge of yellow, and that the I>ouisvtlle Cotton Oil Co.. an oil 
refinery, claimed to have discovered a secret process of refining cotton- 
seed oil which would give it ji coloi- and wlien lefined was free from 
artificial coloring matter, and tliat said company sohl large amomits 
of this oil to the manufacturers of oleo, which was used by them in 
the manufacture of said commodity. 

^ 3. That said oil was sold under the brand or trade name of fulvous 
oil, butter oil, golden yellow, etc., made b}' the Louisville Cotton Oil 
Co., and that during said time the manufacturers of oleo bought 
other oils from the Penn Oil &. Supply Co. and the R. I). Winship Co., 
the latter as a broiler of trie Penn Oil & Supply Co., but all of said 
oil was treated with a view of giving it a color. 

4. That some of the manufacturers of oleo submitted samj)les of 
this colored oil to the department for analysis and examination before 
usino the same in the manufacture of oleo, and at the time of sub- 
mitting said oil for examination sought permission of the department 
to use the same in the manufacture of oleo at the rate of one-fourth 
cent per pound. 

5. That the department at the tinie said oil was submitted to it, 
or soon thereafter, examined the same for artificial coloring matter 
and foimd none, and it so expressed itself to Armour & Co., who sub- 
mitted said samples. But it informed said manufacturer that it 
believed said oil to be artificially treated or colored, and at the same 
time and later informed the manufacturers that it would not under- 

, take to prescribe a formula for their commodity, but should a colored 
oleo appear on the market it would be subject to investigation, and 
if found to contain artificial coloring matter, either as a result of 
coloring matter in the oil or in any other ingredient, it would be subject 
to a tax of 10 cents per pound. 

6. The committee further finds that a number of other oleo manu- 
facturers from time to time sought to get the department to give its 
permission to use said colored oil and thereby procure immunity from 
said department against the 10 cents per pound tax, but the depart- 
ment persistently refused to grant immunity and continued to inform 
the manufacturers that if it used said oil it would be at their peril, 
and in the event a colored finished commodity appeared upon the 
markets looking like butter, that it would be subject to investigation 
and if found to contain artificial coloring matter the same would be 
taxed at the rate of 10 cents per pound. 

7. That the Treasury Department has no concern whatever in the 
ingredients entering into oleo, except to see that no artificial coloring 
matter enters into the finished commodity, which would give it the 
shade or color of butter, either through the ingredients entering into 
the finished commodity or the finished commodity itself its concern 
being only over tax liabilities or the revenues of the Government. 

8. That colored oleo, looking like butter during the years 1911 
and 1912 appeared upon the market in the ordinary and usual chan- 

D. OF D', 
8- 1913 



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OLEOMARGARINE TAX. 



nols of trade upon which a tax of one-fourth cent per pound was 

paid. 

• 9. A sample of colored oleo during the month of January, 1912, 
■^ was submitted to the Bureau of Chemistry in the Agricultural 
^ Department for examination, and said bureau transferred the same 
^ to the Bureau of Animal Industry in the same department, where 

it was chemically analyzed and the fact revealed that said oleo was 

artificially colored and that the colorant used was sulphur. 

10. That the Bureau of Animal Industry has nothing whatever 
to do with the revenues of the Goverinnent, its function being to 
look after the healtlifulness of the commodity. While it permitted 
cottonseed oil as an ingredient of oleo, it prohibited the use of sul- 
phur. 

11. That the Bureau of Animal Industry, looking after the health- 
fulness of the commodity, in the month of February through an 
order issued by it, prohibited the use of sulphur in cottonseed oil 
used in the Jiianufacture of f)leo or in the finished commodity. 

12. That after sulphur was discovered in the oleo as herein set 
out a large number of samples of fulvous oil, golden yellow, butter 
oil, etc., were examined; in some of said samples sulphur was found 
and in some no sulphur was found. But all of said oils so examined 
]>resented a color showing artificial treatment. 

13. The committee finds that in the jjrocess of refining cottonseed 
oil it is possible by heating the same and while in its heated condition 
to pass sulphur or sulphur fumes through said oils and thereafter by 
a process of washing or refining wash or blow the sul])hur out of it, 
and yet the oil retain an artificial color. 

14. The committee further finds the first time the Bureau of Animal 
Industry examined said oil or oleo for sulphur -was in January, 1912, 
and found the same by making or ap])lying what is known as the sil- 
ver test — a standard test for sulphur. 

15. The committee finds that the Treasury Department at the time 
said colored cottonseed oil was submitted to it examined the same 
for coal tar and vegetable color and failed to find any such coloring 
matter in said oil. But the committee finds that after January, 1912, 
the Bureau of Chemistry, in the office of the Commissioner of Internal 
Revenue, on an examination of samples of this oil and oleo found the 
same to contain abnormal quantities of sulphur. 

16. The committee finds that the colored matter used by theXouis- 
ville Cotton Oil Co., the Penn Oil Supply Co., and the R. D. Winship 
Co., the latter as a broker for the Penn Oil Supply Co. and the Sher- 
man Oil Co. — engaged during the years 1911 and 1912 in manu- 
facturing and refining cottonseed oil, and which oil was sold by them 
to the manufacturers of oleo — was artificially treated with sulphur 
by adding the sulphur to said oil during the process of refilling the 
same, or by blowing sulphur fumes through the same when said oil 
was in a heated condition, and which sulpliur and sul])hur fumes 
being passed through said oil while in a heated condition gave to 
the same a color, and which when manufactured into oleomargarine 
gave a shade of color to said oleo, causing it to look like butter. 
And this artificiafiy treated oil was sold to the manufacturers of oleo 
at an increase of from 1 to 2 cents ])er ])ound. 

17. The committee finds that the department obtained from the 
books of the manufacturers of oleomargarine, the names of whom are 



4 OLEOMARGAEINTE TAX. 

horeiiiafter set out. the total quantity of treated oil used by them in 
the manufacture of oleo, and that this was corroborated and reen- 
forced by the records and books of tlie raih-oad companies that 
shipped said oil over their lines to said manufacturers, and this was 
further fortified and supported by the books of the refiners of cotton- 
seed oil, to wit. the Louisville Cotton Oil Co.. the Penn Oil Supplv 
•Co.. and the K. D. Whiship Co. 

18. The committee finds that the department called upon ancl asked 
the manufacturers to submit their formulas from which said oleo 
was manufactured and that said manufacturers fully complied with 
said request and furnished to the department their said formulas, 
v/hich said fornudas gave the per cent of cottonseed oil that went 
into the manufacture of oleo; and from the total amount of artificially 
treated cottonseed oil found l)y the department to have been used by 
the manufacturers of oleo, the department found that the manufac- 
turers of oleo made and manufactured amounts thereof sufficient to 
make the total assessed liability amount to the several sums herein- 
after set out against each one of said manufacturers, to wit: 

Moxlev Co $334, 167. 21 

U. S. Butterine Co 68, 321. 38 

Capital Citv Dairy Co 266, 434. 93 

Mound City Butterine Co 4, 680. 00 

Friedman Manufacturing Co 79, 875. 91 

Blanton Manufacturing Co 6, 876. 01 

Hammond & Co - 213, 657. 50 

Armour & Co 122,886.85 

Oakdale Manufacturing Co 11, 371. 98 

OhioButteriueCo 126, 331. 33 

National Butterine Co 11. 658. 46 

^'errnovmt Manufacturing Co 368. 16 

Total 1, 246, 628. 62 

19. The committee finds from the evidence that the above amounts 
are due the Government by reason of said oleomargarhie being arti- 
ficially colored and taxable at the rate of 10 cents per pound instead 
•of one-fourth cent per pound, which latter tax the manufacturers 
paid. 

14. And the ct)nunittee finds that the following manufacturers have 
offered as a comj)romise and full settlement in lieu of the amount pro- 
posed to be assessed against tb.em by the department, to wit: 

Armour & Co ' $10, 000 

Friedman Manufacturing Co 7, 500 

G. H. Hammond & Co 20,000 

Wm. J. Moxlev 25,000 

U.S. Butterine Co 6, 000 

Blanton Manufacturing Co 600 

Ohio Butterine Co 10, 000 

Capital City Diary 22,000 

Total amount offered in compromise and settlement in 

full 101. JOO 

RECOMMENDATIONS. 

1. The connnittee recommends against the acceptance of said sum 
of $101,100 by the department in full settlement and in compromise 
of the amounts found by the committee to be due the Government as 
set forth in the finding 18. 



OLEOMARGAEINE TAX. 



2. The committee recommends that the department make an assess- 
ment agamst each one of the manufacturers as set forth in finding 18 
for the amounts set forth therein. 

W. E. Cox, (Jliairman. 



Views of Mr. Goeke, Mr. Lobeck, axd Mr. Callaway. 

We, the undersigned members of the committee, recommend: 

1. That tlie offered compromise be rejected. 

2. We recommend that the department make an assessment hi one 
of the cases, selected by the department, and require that it be paid 
in full, and party paying in bring suit to recover same, all other par- 
ties agreeing to abide judgment in case tried in proportion to then- 
respective liabilities. 

J. H. GOEKE. 

C. O. Lobeck. 
Oscar Callaway. 



MINORITY REPORT. 
Views of Mr. Hill and Mr. Young. 

We, the undersigned minority members of the committee, after a 
thorough examination of the testimony, can not concur either in 
the presentation of the case by the majority or in either of the 
foregoing rectmmiendations in their entirety. 

We are first of the opinion that as the matter is now in the hands 
of the executive department of the Government, in compliance with 
the law and subject to its disposition and adjustment, no recommen- 
dation by this committee is necessary. 

If such recommendation is desired, we would advise either that a 
test case be made in accordance with the recommendation of tlie 
majority of the majority members, or that the whole case be com- 
promised in accordance with the recommendation of the Solicitor 
of the Bureau of Internal Revenue, in the disci'etion of the Secretary 
of the Treasuiy, and we refer to the able and exhaustive review of 
the case by the Solicitor in justification of oui- final recommendation. 

E. J. Hill. 
H. O. Young. 

o 



